Investigating payroll taxes and federal income tax withholding

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BUILDING BLOCKS STUDENT WORKSHEET

Investigating payroll taxes and federal income tax withholding

When you get your first paycheck, your take-home pay might not be what you expected. That's because of the taxes that are withheld from your paycheck. Understanding payroll taxes and federal income tax withholding can help you manage your money.

Instructions

Read the "Understanding paycheck deductions" handout and answer

the reading questions below.

Review the scenarios starting on the next page and answer the questions.

Reading questions

1. Based on the example in the handout, how much income tax do employers withhold from employee pay?

6.20 percent of gross income 1.45 percent of gross income 7.65 percent of gross income Employers use the information on Form W-4 to compute income tax withholding.

2. Payroll tax consists of which taxes? (Check all that apply.)

Income tax Social Security tax Sales tax

EARN

Medicare tax

BUILDING BLOCKS STUDENT WORKSHEET Investigating payroll taxes and federal income tax withholding

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Summer 2022

changes.

Exemption from withholding. You may claim exemption from withholding for 2019 if both of the following apply.

withheld, you will receive a refund when you file your tax return. If you have too little tax withheld, you will owe tax when you file your tax return, and you might owe a penalty.

? For 2018 you had a right to a refund of all

Filers with multiple jobs or working

federal income tax withheld because you

spouses. If you have more than one job at

3.

had no tax liability, and

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federal income tax withheld because you

instructions including the instructions for

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the Two-Earners/Multiple Jobs Worksheet before beginning.

more information about filing status.

Line E. Child tax credit. When you file your tax return, you may be eligible to claim a child tax credit for each of your eligible children. To qualify, the child must be under age 17 as of December 31, must be your dependent who lives with you for more than half the year, and must have a valid social security number. To learn more about this credit, see Pub. 972, Child Tax Credit. To reduce the tax withheld from your pay by taking this credit into account, follow the

3, 4, and 7 and sign the form to validate it.

Nonwage income. If you have a large

instructions on line E of the worksheet. On

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consider making estimated tax payments using Form 1040-ES, Estimated Tax for

includes all of your wages and other income, including income earned by a

withholding.

Individuals. Otherwise, you might owe

spouse if you are filing a joint return.

GenHeorwal oInldstyruocutiaornes

additional tax. Or, you can use the Deductions, Adjustments, and Additional

Line F. Credit for other dependents. When you file your tax return, you may be

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Scenario 1. Reading a W-4 You can also use the calculator at W4App to determine your

Nonresident alien. If you're a nonresident alien, see Notice 1392, Supplemental Form W-4 Instructions for Nonresident Aliens,

taking this credit into account, follow the instructions on line F of the worksheet. On the worksheet, you will be asked about

tax withholding more accurately. Consider

before completing this form.

your total income. For this purpose, total

Review the completed Form W-4.

Separate here and give Form W-4 to your employer. Keep the worksheet(s) for your records.

W-4 Form

Department of the Treasury Internal Revenue Service

Employee's Withholding Allowance Certificate

Whether you're entitled to claim a certain number of allowances or exemption from withholding is subject to review by the IRS. Your employer may be required to send a copy of this form to the IRS.

OMB No. 1545-0074

201X9X

1 Your first name and middle initial

Last name

2 Your social security number

Sadie

Omozusi

Home address (number and street or rural route)

123 Main Street

? 3 Single

Married

Married, but withhold at higher Single rate.

Note: If married filing separately, check "Married, but withhold at higher Single rate."

City or town, state, and ZIP code

4 If your last name differs from that shown on your social security card,

Anytown, Any State XXXXX

check here. You must call 800-772-1213 for a replacement card.

5 Total number of allowances you're claiming (from the applicable worksheet on the following pages) . . . . 6 Additional amount, if any, you want withheld from each paycheck . . . . . . . . . . . . . .

50

6$

7 I claim exemption from withholding for 2019, and I certify that I meet both of the following conditions for exemption.

? Last year I had a right to a refund of all federal income tax withheld because I had no tax liability, and

? This year I expect a refund of all federal income tax withheld because I expect to have no tax liability.

If you meet both conditions, write "Exempt" here . . . . . . . . . . . . . . . 7

Under penalties of perjury, I declare that I have examined this certificate and, to the best of my knowledge and belief, it is true, correct, and complete.

Sadie Omozusi Employee's signature

(This form is not valid unless you sign it.)

8 Employer's name and address (Employer: Complete boxes 8 and 10 if sending to IRS and complete boxes 8, 9, and 10 if sending to State Directory of New Hires.)

Date

9 First date of employment

10 Employer identification number (EIN)

For Privacy Act and Paperwork Reduction Act Notice, see page 4.

Cat. No. 10220Q

Form W-4 (201X9X)

5. Who completed the Form W-4? 6. Is the taxpayer married or single? 7. How many allowances does the taxpayer claim?

BUILDING BLOCKS STUDENT WORKSHEET Investigating payroll taxes and federal income tax withholding

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Summer 2022

federal income tax withheld because you had no tax liability, and

? For 2019 you expect a refund of all federal income tax withheld because you expect to have no tax liability.

If you're exempt, complete only lines 1, 2,

spouses. If you have more than one job at a time, or if you're married filing jointly and your spouse is also working, read all of the instructions including the instructions for the Two-Earners/Multiple Jobs Worksheet before beginning.

age 17 as of December 31, must be your dependent who lives with you for more than half the year, and must have a valid social security number. To learn more about this credit, see Pub. 972, Child Tax Credit. To reduce the tax withheld from your pay by taking this credit into account, follow the

3, 4, and 7 and sign the form to validate it.

Nonwage income. If you have a large

instructions on line E of the worksheet. On

Scenario 2. Completing a W-4 Your exemption for 2019 expires February 17, 2020. See Pub. 505, Tax Withholding

amount of nonwage income not subject to withholding, such as interest or dividends,

the worksheet you will be asked about your total income. For this purpose, total income

and Estimated Tax, to learn more about

consider making estimated tax payments

includes all of your wages and other

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You can also use the calculator at

Nonresident alien. If you're a nonresident alien, see Notice 1392, Supplemental Form

taking this credit into account, follow the instructions on line F of the worksheet. On

8.

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asked about purpose, total

in the scenario.

Separate here and give Form W-4 to your employer. Keep the worksheet(s) for your records.

W-4 Form

Department of the Treasury Internal Revenue Service

Employee's Withholding Allowance Certificate

Whether you're entitled to claim a certain number of allowances or exemption from withholding is subject to review by the IRS. Your employer may be required to send a copy of this form to the IRS.

OMB No. 1545-0074

2019

1 Your first name and middle initial

Last name

2 Your social security number

Home address (number and street or rural route)

3 Single

Married

Married, but withhold at higher Single rate.

City or town, state, and ZIP code

Note: If married filing separately, check "Married, but withhold at higher Single rate." 4 If your last name differs from that shown on your social security card,

check here. You must call 800-772-1213 for a replacement card.

5 Total number of allowances you're claiming (from the applicable worksheet on the following pages) . . . . 5 6 Additional amount, if any, you want withheld from each paycheck . . . . . . . . . . . . . . 6 $ 7 I claim exemption from withholding for 2019, and I certify that I meet both of the following conditions for exemption.

? Last year I had a right to a refund of all federal income tax withheld because I had no tax liability, and ? This year I expect a refund of all federal income tax withheld because I expect to have no tax liability. If you meet both conditions, write "Exempt" here . . . . . . . . . . . . . . . 7 Under penalties of perjury, I declare that I have examined this certificate and, to the best of my knowledge and belief, it is true, correct, and complete.

Employee's signature (This form is not valid unless you sign it.)

8 Employer's name and address (Employer: Complete boxes 8 and 10 if sending to IRS and complete boxes 8, 9, and 10 if sending to State Directory of New Hires.)

Date

9 First date of employment

10 Employer identification number (EIN)

For Privacy Act and Paperwork Reduction Act Notice, see page 4.

Cat. No. 10220Q

Form W-4 (2019)

9. If Paulo claimed 0 as his withholding allowance, how would that affect his federal tax withholding and his take-home pay?

10. Why might a single person with no children choose 0 instead of 1 as the withholding allowance?

BUILDING BLOCKS STUDENT WORKSHEET Investigating payroll taxes and federal income tax withholding

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Summer 2022

Scenario 3. Reading a pay stub

Review a sample pay stub.

Pay stub

SMITH AND COMPANY., INC. 123 West Street

Smalltown, Any State XXXXX

EMPLOYEE

Johnson, Bob

SOCIAL SECURITY NO.

XXX-XX-6789

PAY RATE

18.00 regular 27.00 overtime

PAY PERIOD

1/7/XX to 1/13/XX

EARNINGS

Regular Overtime

HOURS

40.00 2.00

GROSS INCOME TOTAL DEDUCTED NET INCOME

AMOUNT

720.00 54.00

774.00 213.29 560.71

DEDUCTIONS

Federal income tax FICA Social Security FICA Medicare State income tax Retirement

AMOUNT

60.45 47.99 11.22 16.23 77.40

11. What's the total amount of payroll taxes (Social Security and Medicare) being withheld?

12. What's the total amount of federal tax being withheld?

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